Growing Pains

Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.

Good morning. It’s been a long time since I dusted off this keyboard covered in Cheetos dust and brought all 12 of you my musings. Candidly, I’ve been on my inaction arc since late August and it’s been going stupendously. My screentime largely dedicated to Discord and Twitter was having a negative impact on the 3 brain cells I have left and I’d like to preserve them for future usage. Only recently have I been slowly easing my way back into being active in this crypto hellscape.

I won’t spend time discussing how we’re about to embark on a spiritual journey towards generational wealth - I will leave that all to Wilson. Instead, I’m mostly interested in debriefing on the Hyperspace AVAX NFT airdrop that went out last night.

TF is Hyperspace?

For the uninitiated, Hyperspace started out as an NFT aggregator on Solana back in 2022. I never used them but they gained a decent reputation as an aggregator. Going into this fall, Avalabs brought them aboard to bring some buzz to the AVAX NFT community by incentivizing traders to buy and sell NFTs for points on Hyperspace’s platform.

Much like Blur, these points were worth real money (specifically $AVAX). Before and during Thanksgiving week, myself and many other aspiring degenerate gamblers proceeded to buy and sell AVAX NFTs for these sweet, sweet points.

Makes sense. Gud ponzi, right? Right???

Well, the Season 1 airdrop came out yesterday and people were not entirely pleased.

Don’t get me wrong, some people made out like bandits, but my sense is that these were in the minority. To be clear, it seems that most people made money, but it was far less than anticipated.

Before I go on, I want to preface everything that I’m about to write by saying that this will be a best and good faith effort to address criticism voiced by the community, actions (or lack thereof) taken by Hyperspace and my thoughts on what can be done better going forward.

In the interest of full disclosure, I somehow lost money farming and I’ll get into that below, but it wasn’t enough to tilt me to the point where I’m not able to compartmentalize my bias. Mostly.

The Points

I want to start with the points system. Like Blur, traders were awarded points for buying and selling on Hyperspace. There were also social points that you could accrue by onboarding friends via referral links. Bounties were put out on high-profile crypto personalities for even more points. Still with me? Great.

I’m going to table social points because that’s mostly an unknown to me personally with how they translated to AVAX, so let’s dig into the trading points.

The quick and dirty on trading points is that buying any listing floor NFT netted you about 250-300 points per AVAX spent. Selling an NFT was roughly an order of magnitude less than that (so 25-30 points) and buying NFTs through bidding was somewhere in the middle. This is directional math and not meant to be precise so please save your “ackshuallys” and go somewhere else.

Anyway, with the promise of a juicy airdrop, this brought the craziest volume I’ve ever seen for AVAX NFTs since I got involved in summer 2022.

Dokyo had $5m volume over the last day, Jesus Christ. It makes sense when you realize that it was the sweet spot between minimal losses on each trade while maximizing point accrual at 30-40 AVAX each. A farmer’s favorite.

Now, let’s look at the top 10 traders right at the end of Season 1.

Pretty epic, right? Some of these guys were incurring losses of 500-600 AVAX for the sake of points.

Now… let’s look at the top 10 AFTER Season 1 ended.

Yikes. Everybody here got points deducted. But why?

As I’m writing this, Hyperspace dropped an announcement in their discord explaining why basically everyone who participated had some amount of points taken away. I have a lot to say here in a section down below so keep reading.

This seems like a great segue into discussing the Hyperspace team and a masterclass on how to improperly manage expectations.

Hyperspace Communication

Stop me if you’ve heard this one before.

Hyperspace expectation management and Manti Te’o’s girlfriend walk into an empty bar 5 minutes before close. They ask for a drink from the bartender. The bartender closes the bar and leaves because neither of them exist.

As someone who did not have a lot of skin in the game, I can say with certainty that communication between Hyperspace and the community was downright abysmal.

Airdrop Value

As I tweeted earlier in the week, there was a lot of speculation surrounding what the Season 1 airdrop would be worth. Many people were using figures from AVAX Rush (~$160m) while others were speculating very low 7-figs. The spread was massive and initially nobody had a clue what to expect.

For reasons unknown, Hyperspace decided to engage directly with discord users and temper these expectations early, which was a misstep.

Remember Blur Season 1? Nobody knew anything. The token price, what points were worth, and other factors were completely a mystery. This led to massive engagement with their platform and basically ethered Opeasea and Looksrare in 3 months.

Ever wonder why book adaptations almost always fail? It’s because your imagination is allowed to run free. Bringing a book to life and establishing what it’s “supposed to be” cannot compete with someone’s personal and free-flowing thoughts.

Here’s another example - I worked in tradfi private markets for a number of years. When soliciting offers from potential buyers, any good investment banker worth his salt would never, EVER provide a valuation target for their client. They want to create competitive tension between bidders to drive up their client’s price.

We could have seen a similar dynamic here. If the Season 1 airdrop was truly a black box, people would have grinded harder to keep pace with other traders on the leaderboard to ensure they still got a good payout. Instead, parameters were established and people started to FUD tremendously during the last couple of days of Season 1.

This is all a very long-winded way of saying that speculators in a speculative market must be allowed to speculate.

I’m all for open comms between devs, creators and their community. It’s necessary. But sometimes, what you don’t say can be even more important. The takeaway here is that with respect to the airdrop value for Season 1, nothing should have been disclosed.

At least we got good memes.

Points Deduction

This is what I take issue with the most. Retroactively deducting, or “rewarding less” points, was a complete whiff for several reasons. Personally, I had 2/3 of my points deducted from 450k to 182k, so I certainly lost money. That is definitely annoying for the time spent, but we move on.

As for the announcement I mentioned earlier, the TLDR is that Hyperspace did not want to award immediately flipping NFTs for a loss in the same way that someone naturally buying and trading NFTs would be rewarded.

Right off the bat, immediately buying and selling NFTs for a loss and its relative value to other trading activity should have been disclosed immediately and prior to Season 1 kicking off. I wouldn’t have cared if I knew that quickly buying and selling for a loss to gain points would have meant less points if I had known at the beginning.

I have a hard time believing that Hyperspace did not anticipate farmers approaching this tactic. It seems like they capitulated to a handful of vocal whiners in their discord who were complaining that they didn’t want to put in the time and effort to accrue points in the way farmers did.

There’s also a very self-evident issue with having traders keep track of one number only to be presented with an entirely different number post-airdrop. The fact that everyone had some % of points deducted tells me that there could be no reliable way to track what fits their vague definition of “wash trading” and how each person is penalized.

When you only have 100 wallets trading each other, someone is going to get flagged. This is a much more minor point as it applies to a de minimis percentage of traders, so I won’t harp on it much.

My biggest gripe with this is that we were only informed of this after the airdrop came out. Had this been disclosed at the outset, my approach would have been significantly different and so would have everyone else’s. Just because we all got penalized to wildly varying degrees does not rectify that.

Conclusion

I think I speak for a lot of people when I say that this was an extremely exciting and ambitious initiative by both Avalabs and Hyperspace to bring some excitement back to AVAX NFTs. I also speak for many when I say that there was certainly some disappointment with how things panned out. There are lessons to be learned and changes to be made, my hope is that Hyperspace will be able to improve their communication and their delivery to get people back on the bandwagon.

And with that, I bid thee adieu. Until next time.

Cheers,
Chuck